Qualifying For Mortgage With High Debt To Income Ratios

Gustan Cho Associates

Tips On Qualifying For Mortgage With High Debt To Income Ratios

Qualifying For Mortgage With High Debt To Income Ratios:

Qualifying for mortgage with high debt to income ratios is one of the most important factors when it comes to qualifying for a residential mortgage loan.  There are two types of debt to income ratios.  The front end debt to income ratio and the back end debt to income ratio.  The front end debt to income ratio is also referred to as the housing ratios which is the sum of the monthly housing payments which includes the principal, interest, taxes, and interest ( PITI ) as well as homeowners association dues and flood insurance if it is applicable and dividing it by your monthly gross income.  Your back end debt to income ratios are the sum of your monthly housing payment plus all other minimum monthly payments such as auto loan payments, minimum credit card payments, student loan payments, child support payments, installment loan payments, and other minimum monthly payments and dividing it by your monthly gross income.  For example, if your proposed housing payment is $1,000 per month and your monthly gross income is $5,000 per month, your front end debt to income ratio, or housing ratio, is $1,000 monthly housing payment divided by your monthly $5,000 gross income or 20% DTI.  Debt to income ratios are also referred to as DTI.  On the above scenario, if your monthly minimum payments on all other debt total another $1,500, then your back end debt to income ratio is calculated by taking your $1,000 housing payment and adding the sum of your total other minimum debts of $1,500, or $2,500, and dividing the $2,500 by your monthly gross income of $5,000 which yields 50% DTI.

Qualifying For Mortgage With High Debt To Income Ratio Requirements

There are debt to income ratio requirements for each individual mortgage loan programs.  For example, in order to get an approve/eligible per DU FINDINGS or LP FINDINGS on a conventional loan, the maximum debt to income ratio requirements cannot be greater than 45% DTI.  There are no front end debt to income requirements on conventional loans.  To qualify for a FHA Loan with credit scores of under 620 FICO credit scores, the maximum front end debt to income ratios allowed is 31% DTI and the maximum back end debt to income ratios allowed is 43% DTI.  If your credit scores are over 620 FICO, the debt to income ratio requirements are more generous where up to a 46.9% debt to income ratios are allowed for front end debt to income ratios and a 56.9% DTI is allowed for back end debt to income ratios.

Qualifying For Mortgage With High Debt To Income Ratios And Loan Programs

USDA Loans require a front end debt to income ratio of 28% DTI and 41% back end debt to income ratios.  VA Loans do not have a front end debt to income ratios and can go up as high as 60% debt to income ratios depending on what the automated underwriting system approves the VA mortgage loan applicant.  Most Jumbo Mortgage lenders, condotel mortgage lenders, non-warrantable condo lenders, and portfolio mortgage lenders  will cap the debt to income ratios at 40% DTI.

Overlays In Qualifying For Mortgage With High Debt To Income Ratios

Just because you meet HUD’s and Fannie Mae and/or Freddie Mac Guidelines with regards to debt to income ratios, many mortgage lenders may have mortgage lender overlays with regards to debt to income ratios.  Mortgage lender overlays are additional guidelines that is placed in addition to the minimum mortgage lending guidelines set by HUD, FANNIE MAE, FREDDIE MAC, VA, USDA.  For example, to HUD’s guidelines to qualify for a 3.5% down payment home purchase FHA loan, the minimum credit score required is 580 FICO.  However, a bank, credit union, or mortgage company may have their own lending guidelines with regards to minimum credit scores where they will not accept any mortgage loan applicant with credit scores of at least a 640 FICO credit score.  With FHA loans, the maximum debt to income ratios allowed is 56.9% DTI.  A large percentage of mortgage lenders will have debt to income ratio overlays where they will not accept debt to income ratios higher than 45% DTI.  If you are refused a mortgage loan due to mortgage lender overlays on debt to income ratios, contact me at gcho@gustancho.com or visit our website at www.gustancho.com and I will be able to assist you or call me at 262-716-8151. The Money Store is licensed in most of the 50 states.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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